PROSPECT PARK: The Online Network's Pitch to Investors & the Profitability of ONE LIFE TO LIVE, ALL MY CHILDREN

Peter Kafka over at the Wall Street Journal's "All Things D" blog claims that Prospect Park chief Jeff Kwatinetz "has yet to win over enough financial backers, which is why he’s now talking to people like me, hoping we’ll help him make his case." Kafka goes on to outline the pitch he heard from The Online Network (TOLN). Here, we boil it down to three salient points.

1. Prospect Park doesn't have the money yet.In a nutshell, every episode will continue to cost $160,000, whether on TV or on TOLN, leading to the need for $80 million to produce both soaps for a year. Kwatinetz wants $65 million in hand to start off. He doesn't have it. We can probably infer from this point, by itself, that we won't be seeing any new episodes in January 2012 after all. After that, what is PP's game plan?

2. PP projects that only 250,000 web views will make an episode profitable.
For the sake of argument, say ONE LIFE TO LIVE and ALL MY CHILDREN were both capturing 2.5 million viewers each for an average episode in 2011. According to Kafka, Kwatinetz thinks if just a tenth of those fans will watch on the web, he'll be set. In a sense, that's great news--after all, some of the posts on our little site can get over 60,000 views. Surely a new episode of AMC can triple that?

However, the article says it's hard to escape the fact that the whole premise of transferring an audience from one medium to another is almost entirely untested (there were similar rumblings in the late 1940s and early 1950s when shows moved from radio to television). We're actually not sure that 10% will continue to the web (especially when they can wait a week and see it on cable) and we're also skeptical about being able to break even with the same costs, but one-tenth of the first-run audience. Magical thinking?

3. Thankfully, when we see the revenue projections, it all seems possible once again.
The key, we surmise, is that PP is planning to establish many discreet revenue streams. Let's start with the first "airing": online, streaming at TOLN. Apparently, Hulu can charge $40 for every thousand people that view an ad (during programming of similar appeal). If TOLN charges advertisers the same rates as Hulu (in other words, market rates), then (bear with us here!) the math actually works out fine: 250 thousand viewers x $40 per thousand views = $10,000 per ad per episode.

Going back to the original cost of $160,000, looks like more than half of that could easily be generated from web viewers. Maybe even more, let's be realistic. It's possible to cram 16 commercials into an episode of AMC or OLTL, even on the web. In which case, TOLN breaks even on that first "airing" and all the other revenue streams, such as cable, pay per view, on-demand, iTunes, DVDs, and so on would be, as they say, pure gravy.

As it turns out, We Love Soaps started out skeptical, but we actually think TOLN is a good investment. So does Kafka: "Still, compared to some pitches we’ve seen win funding in the last couple years, this one seems almost conservative," he concludes. So what's the hold-up with investors?

"While we feel that it’s obvious that convergence is here, we’ve met with an unusual amount of skepticism," according to Kwatinetz. "So now we’re going out to Silicon Valley, and they seem to get it.”

Here's the rest of the Magid research, as presented to Kafka by Prospect Park.

What do you think of Prospect Park's investors' pitch for TOLN? Would you invest? Tell us in the Comment section, below.

It sounds like a good investment to me but if you think that they are going to put 16 commercials during a webcast of the series for these shows, forget it. Hulu gives viewers about two commercials for each break for each half hour program. I would much rather watch the shows on demand.

I think PP is being too ambitious. I would invest in their idea, if they decided to reduce the number of episodes for both shows. It would be better for Prospect Park to start small, and then increase the number of episodes after proving that their idea is profitable, instead of over extending themselves, and having the whole thing collapse.

An important factor that should also be considered, and should make this more attractive to investors, is the fact that shows seen online require viewers to watch the advertisements. At least it’s been my experience that there’s no fast-forwarding through commercials; something most of us do with everything we DVR from television.

With a sign-in system and customers setting up user accounts it also provides valuable demographic experience much more precise that the traditional TV ratings system has ever been able to provide. Another reason this venture would be a such a good investment.

Ron, have you ever heard the old line about advertisers "know that they're wasting half of their advertising budget, but they just don't know which half?" Along the lines of what you are saying, I imagine with all the additional, precise ways to target a certain demo, and the greater confidence that the ad wasn't skipped/ignored, smart advertisers would definitely place a premium on TOLN ad spots!

An average ep of AMC is actually only 36 minutes which is part of the reason watching online is appealing. It takes half the time with only 2 15-30 second ads on Hulu. ABC Player is great if you can endure the relentless self promotion. If I had to watch that damn Charlie's Angel reboot promo one my time I may have cracked. They need to find a way to track and target the audience for media buyers through registration, feedback or whatever, but it may be a trick to ask folks to sit through an hour length with commercials unless there is a way to stop and restart where you left off. And it better work with iPad or TOLN is hosed. If there is anything to the Bravo rumor, that's got to help, especially if they can garner some regular sponsors. You have to wonder with the shakeups at Netflix, Dish rolling out Blockbuster Pass and rumored to be after Hulu, what's Prospect Park offering to investors that is so different? Hopefully they some great answers to those questions. Maybe they should call Hoover and persuade them to sign on as an inaugural sponsor.